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Economy in Brief

Car Sales Continue to Gain As EMU Retailing Dithers
by Robert Brusca  March 3, 2017

European retail sales continue to struggle. While there has been optimism about Europe from its PMI data, retail sales simply tell a different story. The PMI data that Markit released today has filled out the European readings for manufacturing and services. The EMU has a standing on its total private sector PMI that is the best it has seen since January 2011. Germany and France are similarly strong and Spain and Italy are not far behind with strong readings of their own. But this sort of strength is not passing along into consumer spending although there seems that a fire has been built under vehicle registrations.

Real retail sales fell by a small 0.1% in January, but that followed a 0.5% drop in December, a drop in November and declines in six of the last eight months overall. January's 0.1% drop is not something to get worried about, but the retail sales profile taken as whole is different from the stories being told about the European PMIs and other optimistic data. EMU sales volumes are on a decelerating growth profile from 12-month to six-month to three-month. Over 12 months sales volume is up by only 1% in the EMU and nonfood sales are up by only 0.6%. But on all these horizons, motor vehicle registrations are simply flying. Only recently U.S. auto sales finally began to flatten as the pace touched 18mu. Autos sales in the U.S. had been on a rarely interrupted uptrend during the recovery. Europe seems to be following this same pattern with a lag as vehicle registrations from 2012 onward show consistent strength. Non-auto sales may be challenged, but the vehicle sector is still golden.

In the quarter-to-date calculation (QTD) sales are falling at 2.8% annual rate and nonfood sales are falling at 2.1% annual rate. Motor vehicle registrations are soaring at a 57.5% annualized rate. The QTD calculation annualizes the January sales result compared to the Q4 average level. So this 'estimate' of the quarter's growth is very thin; being only one month into the quarter that growth rate can be easily changed by the next two month's results. But January is starting off with retail sales in a hole and vehicle registrations on the moon.

Seven European countries are early reporters of retail sales. Of these, Germany, Portugal and Austria are original EMU members. Germany and Austria have sales lower in January. All three show sales volumes falling on balance over three months and six months. Germany has sales lower over 12 months while Portugal and Austria have small gains (2% or less) over 12 months. In the quarter-to-date, only Portugal shows rising sales at a 4.9% pace. Germany and Austria show sales drops at a pace of -6.4% in Germany and -17.3% in Austria.

For the rest of Europe in the table, most show sales gains in January, but all show broadly weak trends. All show declines in sales in December. As a result, three of four of these reporters show net sales drops over three months; the exception is Sweden with a weak 1.3% annual rate gain. Over six months, Denmark and Norway reveal flat sales, sales are falling at a 1% annualized rate in the U.K., and sales are up at a 3.3% pace in Sweden. Over 12 months, Denmark and Norway have falling sales while Sweden and the U.K. show sales rising by 2.1% or less. For each of these four European nations, all show weakness and are either on decelerating paths or close to it. In the quarter-to-date, sales are lower on balance in three of four countries with Sweden as the exception on a 0.5% annualized rate of growth.

The weak retail sales and strong vehicle registration trends tell discordant stories. Maybe the European recovery is uneven and the wealthier car-buying European is doing well while the middling European is not faring as well and being more cautious. The strong PMI data are not calling the tune, at least not yet. Europe does have other things in the mix that could be in play and might explain why shoppers are holding back. Elections are coming and election troubles have already cropped up in France. Germany is poised for its own elections as well. And Italy has an embattled government. Europe still has migrant issues to sort out and Germans are miffed that the ECB is sitting on its hands as inflation has screeched over the 2% mark at least in Germany. Of course, for the U.K. and the rest of Europe, Brexit hangs in the balance with different knock effects everywhere. U.K. retailing and service sector data are just beginning to act as though Brexit concerns might finally be biting. These concerns may be holding back consumers although progress in EMU and in EU unemployment has been in train. Only Italy has showed backtracking on unemployment progress. Europe has too-many crosscurrents and for now European trends are too difficult to sort out.

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